The Week that Was: Hasbro, Microsoft, Discover, and LinkedIn
Tim is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
Even with the nearly $2 a share rise Hasbro (NASDAQ: HAS) investors have enjoyed since posting our original article last week, HAS remains a great value play. Not at the 12 times earnings the company was last week, but still one of the cheapest in the industry. Mattel, Hasbro’s primary competition, is trading at over 15 times earnings, which is just about right after a solid quarter and the prospects for a strong 2012.
For Hasbro, the initial reaction to their quarterly and year-over-year earnings announcement was not justified. When you delve deeper into the results you come to realize HAS may not have killed it, but they certainly didn’t warrant a sell-off. Looks like investors have recognized that, and hopefully you were/are one of them. There’s also the not-so-incidental matter of a 3.9% dividend on top of some serious growth potential. Hasbro remains a solid Buy.
One of the best opportunities to solidify a portfolio right now remains Microsoft (NASDAQ: MSFT). As with Hasbro, Microsoft’s relative value has gotten noticed since the write-up last week, but not to the same extent. The less than 2% bump these past few days keeps MSFT on top of the value list in the Technology sector, if not one of the best opportunities period. The lack of net income growth year-over-year seemed to have concerned investors, but a closer look and we find a $1.1 billion increase in expenses compared to Q4 of 2011 was to blame, certainly not revenues.
Heading full speed ahead into the exploding Cloud marketplace, the soon-to-released Windows 8 and the Mango (Windows 7.5) smartphone partnership with Nokia, these are all tremendous growth opportunities for an already growing company. Don’t miss out on this one, or one of the highest dividend yields (2.6%) in the industry. Strong Buy.
Compared to last week, Discover Financial (NYSE: DFS) has risen the least of last week’s buy recommendations. For value investing folk this isn’t a bad thing; in fact it’s prolonged what is a fantastic investment opportunity. The primary players in the industry in addition to DFS -- Visa (NYSE: V) and Mastercard (NYSE: MA) -- all benefited from the announcement that credit card holders borrowed like crazy in December. Consumer credit jumped a whopping $19.3 billion for the month, well beyond the $15 billion analysts had predicted.
Visa and Mastercard popped as you’d expect, making them even more expensive. V currently trades at over 30 times earnings and MA at nearly 27. Not that those are ridiculous multiples given the potential for earnings in 2012. But with Discover’s P/E of 7 you’d be hard pressed to find a company with this kind of upside trading so cheaply. Another Buy.
Even with today’s drop, LinkedIn (NYSE: LNKD) remains one of the most expensive stocks on the planet. Last week’s earnings announcement seemed to pour fuel directly on what was already a white hot fire. The subsequent jump in share price was absolutely unwarranted. But internet companies in particular seem to garner a core group of fanatics that fly in the face of fundamentals.
As discussed toward the end of last week, the pending Facebook IPO may have had something to do with it as well. Investors seem enamored with the sector as a result, but trading at over 740 times earnings is borderline reckless. Even forward P/E projections put the value of LinkedIn at over 80 times earnings. This is a momentum stock that may still have a little left in the tank, but be wary of this one. Take profits if you’ve got ‘em.
The investment opinions included are just that, opinions. Investing involves risk, as you well know, so consider your decisions wisely. Tim holds no position in the securities mentioned in this article.